Chinese value retailer Miniso’s US$890 million investment in the country’s 2nd largest supermarket chain Yonghui Superstores certainly raised a lot of eyebrows.Hou Yi, founder of Hema, Alibaba’s new retail supermarket chain, chipped in as well, posting a message on social media. In the post, he highlighted three key challenges facing China’s supermarket retail ecosystem, and pledged his full confidence that Miniso founder Ye Guofu will lead retail to “completely beat ecommerce”. Hou Yi (left) and Ye Guofu (right)Hema, or Freshippo, is facing its own challenges amid Alibaba Group’s biggest transformation in history. In March this year, Alibaba announced that Hou Yi would retire as Hema CEO, replaced by CFO Yan Xiaolei.This is amid industry-wide soul searching on the future of new retail, with some claiming that ecommerce platforms were failing their 8-year long offline retail attempts, while foreign-owned retailers such as Sam’s Club gained a lot of ground in the meantime. Hema outletWe spoke with some retail operators in China and they all agree with Hou Yi’s assessment, especially on the 3rd point where retailers were too closely bound with brands.Below is the full post of Hou Yi:After reading the speech at the shareholders’ meeting of MINISO, I want to commend Ye Guofu for his courage and bold vision. He suggested that China’s retail market has room for a trillion-yuan-valued supermarket, and I firmly believe in this point as well.China’s traditional retail industry is facing significant challenges and is hard to rebound on its own – External forces are needed to break through and push for transformation. It requires business leaders with a global perspective and vision to drive the change. The Chinese retail industry has three core issues that need to be addressed: Vision of entrepreneurs:The first generation of Chinese retail bosses were mainly grassroot entrepreneurs who built their businesses from scratch. They learned from foreign retail and faced fierce competition from foreign-invested retail companies. However, they lost their learning targets and faced stiff competition from ecommerce. As a result, their ability to constantly improve their retail business has weakened. Chinese retail has lagged behind global peers by about 20 years. Nowadays, entrepreneurs lack the vision to learn from the world’s advanced retail practices and the ability to evolve to the next level. Weak team capability:The low salary in the retail industry makes it difficult to attract and retain talented individuals. The ability to attract and nurture talent has largely been limited to senior executives, and the middle management tends to age, with talent becoming more mediocre and less distinctive over time. The Key Account (KA) focused procurement system:Traditionally supermarkets have been using a KA-focused procurement system, where supermarkets build long term and stable relationships with brands. This system has led to significant decay of supermarkets’ operational capabilities, with severe homogenisation of products and high prices. From the reform of Yonghui stores by Pangdonglai (a small but well-performing regional supermarket chain), we can see that the only way for supermarkets in China to move forward is to break the existing structure of profit distribution.We must abandon the KA supplier procurement system and adopt a globally advanced model – vertically integrating the entire supply chain. By focusing on developing and promoting high-value private brand (PB) products, as well as advancing in long-term partnerships with suppliers, we should enhance products, services and experiences across various online and offline channels, achieving extremely low-cost operations.I firmly believe that Ye Guofu will lead China’s retail development on a path of rapid growth to completely beat ecommerce.Related —Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].
